TEL AVIV, March 13 (Reuters) - New potash supply contracts with China and India should lead to a recovery in sales this year at fertiliser and specialty chemical maker Israel Chemicals , which posted a bigger than expected drop in fourth-quarter 2012 revenue and profit.

The world’s sixth-largest producer of the crop nutrient - which is a takeover target of global leader Potash Corp - said it expects demand to rise on the back of stronger crop prices and a 2012 slide in fertiliser prices.

“The high price of agricultural products, together with the past year’s decline in fertiliser prices, has given farmers a strong incentive to increase fertiliser application,” ICL said on Wednesday.

During the first quarter of 2013, ICL signed a number of significant supply agreements with customers in India and China, indicating strong volumes for 2013, the company said.

Potash is a nutrient that improves yields of corn, rice, palm and other crops, which boomed in the past decade as incomes and food demand in developing countries rose. Contracts with big importers like China and India set a benchmark for prices.

ICL will supply 820,000 tonnes of potash to customers in India in 2013, representing about 23 percent of the total potash supply contracts announced so far in 2013.

ICL added that it continued to hold talks for the supply of potash to additional customers in India.

It will supply 660,000 tonnes of potash to China in the first half of the year. The company signed 3-year framework agreements with a number of Chinese customers for the sale of 3.3 million tonnes of potash.

ICL said there was also an expectation for strong potash demand in Brazil’s next fertilising season, citing data indicating lower potash inventory levels at the end of 2012 compared with the end of 2011.

Citi analyst Andrew Benson said the start to the year seems to be encouraging, especially for ICL’s fertiliser business where India, China and Brazil have returned to the market.

“The fundamentals for the fertiliser industry are robust. However, we expect a lower average selling price this year which limits the impact of a potash volume recovery,” said Benson, who rates ICL shares “neutral”.

While most in the industry continue to see strong demand growth long into the future, some question whether there is too much new capacity being readied, a case that has gained momentum with the recent lacklustre prices.

POTASH CORP TAKEOVER?

Canada’s Potash Corp, the world’s largest fertiliser producer, owns 13.9 percent of ICL, which is controlled by conglomerate Israel Corp.

Potash Corp last year began talks with Israeli officials on acquiring ICL, the second-largest company on the Tel Aviv stock market, so it can shore up its leverage with China and India, which are expected to drive much of the industry’s growth.

Potash Chief Financial Officer Wayne Brownlee said last month the Canadian company was determined to buy most, if not all, of ICL and that stiff local opposition to such a takeover is based on unfounded fears.

Whether Potash will be allowed to buy ICL is a key question that will face a new Israeli government expected to be formed in the coming days. The government holds a golden share in ICL, giving it the authority to decide on any takeover move.

ICL’s net profit in the fourth quarter fell to $209.5 million from $369.6 million a year earlier. Revenue declined to $1.34 billion from $1.71 billion reflecting lower quantity sales, especially to India and China and lower average prices.

ICL was forecast to earn $224 million in the quarter on revenue of $1.44 billion, according to a Reuters poll.

Its shares were off 0.3 percent to 47.55 shekels at 1303 GMT, compared with a 0.1 percent rise in the blue chip index.

“The quarter is basically meaningless regarding the share price, considering the saga of a potential merger with Potash and the positive change in trend following the contracts signed in the East,” Clal Finance analyst Jonathan Kreizman said.

ICL declared a dividend of 11.6 cents a share or a total of $147 million for the quarter.